The implied volatility term structure of stock index options

The Term Structure of Systematic and Idiosyncratic Risk

“…Taken together, the above studies reach conflicting conclusions. These range from a rejection of (an implication of) the expectations hypothesis (Della Corte et al, 2011 andJohnson, 2016) to mixed results (Mixon, 2007) and not being able to reject the expectations hypothesis for the term structure of variance (Heynen et al, 1994 andCampa &Chang, 1995). Our study is different in several important aspects.…”

“…2 Campa & Chang (1995) and Della Corte et al (2011) study the term structure of foreign exchange variance and volatility, respectively. Mixon (2007) and Johnson (2016) extend these studies to the term structure of equity index implied variance. Our work is most strongly related to a study by Heynen et al (1994), who focus on the term structure of the index and individual equity option implied volatility.…”

“…Our study is different in several important aspects. First, unlike Heynen et al (1994), Campa & Chang (1995), and Mixon (2007), we study the modelfree option implied variance, which makes our results immune to potential misspecification of a specific option pricing model used. That is, we avoid performing a joint test of correct option pricing model specification and the expectations hypothesis.…”

“…That is, we avoid performing a joint test of correct option pricing model specification and the expectations hypothesis. Second, we extend the work of Mixon (2007) and Johnson (2016), who focus on the market index only. Because our derivation points to the link between the option implied variance of the index and the individual equities, we study the term structure of the option implied variance of individual equities.…”

Option pricing under time-varying risk-aversion with applications to risk forecasting

“…In particular, the volatility term structure is upward sloping for σ 0 < φ ⋆ and downward sloping for σ 0 > φ ⋆ . Mixon [128] finds that the volatility term structure of the S&P 500 index is often upward sloping and sometimes downward sloping. …”